Impact of Gujarat Election Results on the Stock Market

The technical analysts are of the view that political considerations are likely to play a more dominant role in driving economic decisions. Stock markets at present levels, though are pricing in a BJP victory to some extent, they are likely to trade sideways till the final outcome is known.

There are 12 assembly polls in between now and the general elections, which analysts believe, in a way will also be interpreted as a referendum on the Modi-led government's two key reforms. First is the note ban drive and second is the Goods and Services Tax implementation.

The focus will be on Gujarat, Karnataka, Madhya Pradesh and Rajasthan. According to some reports, the EC could hold elections for states that are scheduled to hold assembly elections between end-2018 and mid-2019 simultaneous with the center 2019 general election.

Few analysts stated that once the results of this election are out, the anticipation for the outcome of 2019 Lok Sabha election would be quite near. The second important thing to notice is that Gujarat being the home state of the PM Modi, his popularity in the home state would be taken as a significant sample for his popularity at all-India level.

There are big-ticket reforms that are behind us and we expect incremental reforms to focus on execution of already announced measures - the banking sector, strategic stake sales, infrastructure spending, and privatization. It can also be expected that the government to pause on fiscal consolidation in FY18.

According to economists, we do not expect the government to throw caution to the wind, but we do expect some shades of populism to emerge over the next year.

Although most analysts expect Narendra Modi to come out victorious in Gujarat, which could impact the market sentiment due to the political stability and the current thrust of the government on the economic reforms are the source for the anticipation of long-term bull-run in the markets.